The main stream media as investment timing tool (or contrary indicator)

You all know I am invested in gold and have advised friends and clients over the past eight years to invest in gold too if only a part of their savings.

You all know that for the first time in 8 years I became very cautious on gold investments about two weeks ago when Goldman Sachs produced a nine page piece of “research” exhorting all and sundry to invest in gold.

Today, Business Week front page leads with gold:

http://www.businessweek.com/magazine/content/10_36/b4193058839907.htm

And then there is also this:

http://www.businessweek.com/news/2010-08-31/gold-rallying-to-1-500-as-soros-s-bubble-inflates.html

…… things that make you go “hmmmm”!!!

In the above chart you can see the gold bull market began around 2000. In the two smaller charts below the main chart, you can see the evolution of the S&P 500 and of the 30 year US Treasury Bond priced in gold bullion.

The main stream media coming out at this juncture to tell everyone that gold is a good investment is not at all timely. Not by a country mile.

I am, generally speaking, still bullish on gold for the long term; that would be for the next five to ten years. But I am also mindful that when a mainstream publication finally catches on to an investment trend and talks about it, it is usually time to start taking some profits and bide your time. The clincher, in my humble opinion, is of course the fact that Goldman Sachs should be waxing lyrical about investing in gold. The rationale here is that generally speaking, since banks have been allowed to run proprietary trading desks, trading can only be profitable if someone buys an investment from you at a higher price than what you paid for it. And since banks’ trading desks have been fabulously profitable for the past few years,  that tells me that in the short term (the short term could be some weeks and/or months) GS needs to unload a bunch of positions and they will be unloading them on the people their report was aimed at.

The moral of the story is this. I am still long bullion and some mining company shares. However, I have significantly cut back on mining company shares in the past ten days and have a good chunk of cash on hand.

If I am right, I think I will be doing what Goldman Sachs is planning on doing. That is, sell a bunch of positions at the high, run them down to lower levels and get back in.

Then again, I may just be outsmarting myself here… time will tell….

More charts here: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763

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3 Responses to “The main stream media as investment timing tool (or contrary indicator)”

  1. BluBird Says:

    I’m not so sure QE has ever been attempted at the current pace indirectly or directly. In years prior to the financial collapse, foreign nations with a trade surplus had to recycle their dollars back into US Treasuries. It kept their currencies from appreciating against the dollar and thus maintain the dollar peg. This is more evident from the FED holdings which ballooned exponentially after Lehman. So although their may be QE occurring before the collapse, it has never been done on this scale.

    A 2k gold price is not the problem as long as it is a gradual increase. A rapid rise while stock fall would send a problem. Slowly rising gold price with a rising stock market is no big deal. They will simply call it inflation which they will further say is good for the economy. All markets are heavily rigged. But again all markets at this point is paper.

    So yes, gold can be taken down but it will be a part of a larger collapse in all paper prices. In such an occurrence, physical would be one of the most attractive asset classes. So the limit on price suppression is always the physical market. If they drive the price down too far while the physical market is still strong, then they risk breaking the LBMA and Comex.

    So with so many red flags on the horizon, it is rather unwise to divest of ones physical holdings. Hedge with paper if so desired, but selling bullion is a rather stupid idea.

  2. BluBird Says:

    Does that also mean you see a further collapse in stock prices? Wouldn’t the government at some point step in with QE2, 3, 4, etc to ensure that doesn’t happen?

    Taking down the gold market with massive liquidity seems unlikely. If they take out the paper market, then the liquidity will flow into the physical market. This would break the market. I don’t think their intention is to break the market, only slow its progress. Create an orderly inflationary environment. This too includes gold.

    The continuous fear of a gold take down based on hunches rather than fundamental seem like a good indicator that gold still has further to run.

    • guidoamm Says:

      Regarding QE, it is highly likely it will continue. QE in one form or the other has been the hallmark of our economies since at least the abrogation of Bretton Woods in 1971 (publicly and easily obtainable data shows this but data that is not so easily accessible shows that in fact debt has accelerated faster than GDP since many decades prior to 1971) – how else could you explain that since 1980 GDP has progressed by 100% but Federal Debt has progressed by 1200%? So I absolutely believe QE will continue till the total obliteration of the currency. Debt has a diminishing marginal utility that his mathematical; at some point, no amount of further debt can induce any degree of GDP expansion.

      Regarding how the gold market will be taken down – I don’t know how it will be done. What I do know is that empirically when a big dog like Goldman Sachs produces a report aimed at the general public it inevitably leverages its own book. Time will tell if I am right and, if I am not, my blog is here for all to read and rub my nose into.

      Obviously however, personally I am hedged. I have dramatically reduced my positions in mining shares but am holding on to the bullion and other positions. I have taken profits, if you will, and then some.
      This is a market that is visibly and heavily rigged and manipulated so that it is impossible to make informed decisions on available information and market signals. Caution is the overarching rationale here.
      Maybe the price of bullion will carry on as it has for the past ten years. What I can categorically say is that a rising gold price is the single greatest threat to our respective governments bar none. That is fact. Considering the diminishing efficiency of QE, what is the level at which the price of gold breaks the back of our political/economic system?
      I don’t have the answer to that question. But it is suspicious that Goldman Sachs should suddenly be so sanguine about advising all and sundry to invest in gold.

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